Saturday, September 27, 2003

Economy 'firing on all cylinders'

By Martin Crutsinger
The Associated Press

WASHINGTON - The U.S. economy, powered by a red-hot housing market and a huge dose of spending for the war in Iraq, grew at a surprisingly strong 3.3 percent clip last quarter and raised hopes for an even better performance the rest of the year.

The increase announced Friday in the gross domestic product for the April-June period represented an upward revision from a 3.1 percent estimate a month ago, reflecting greater strength than previously thought in housing and several other sectors.

Analysts said growth in the July-September quarter would be at a higher rate, fueled by President Bush's third round of tax cuts, which took effect in July, and continued low interest rates from the Federal Reserve, a stimulus combination that has helped to push auto and home sales to record levels.

"The economy is firing on all cylinders," Sung Won Sohn, chief economist at Wells Fargo in Minneapolis, said.

"The strong economic growth we are predicting in the future should create some new jobs."

The better-than-expected GDP report failed to lift spirits on Wall Street, where stocks extended their slide. The Dow Jones industrial average fell 30.88 points to close at 9313.08, wrapping up a week in which the Dow lost 3.4 percent, its worst weekly performance in six months.

Many analysts said that based on the GDP revisions and reports on activity in July and August, they now think the economy is growing at a rate in excess of 5 percent in the current quarter and should be able to maintain growth above 4 percent in the final three months of the year.

That forecast, if it proves to be correct, would represent the strongest back-to-back growth rates since the last two quarters of 1999, a period in which the economy was headed toward a record 10-year long economic expansion.

Since then, however, the United States has endured rough times that began with the bursting of the stock market bubble in the spring of 2000 followed by a recession that started in March 2001.

While the country has officially been out of recession since November 2001, it has yet to mount a sustained rebound strong enough to prompt companies to begin rehiring laid-off workers. Job losses just this year have totaled a half-million workers.

In a second report Friday, the University of Michigan said the final reading on its consumer confidence index slipped to 87.7 in September, down from 89.3 in August.

"Higher gas prices and continued job losses had the greatest impact on lower-income households, and these households reported larger declines in confidence," said survey director Richard Curtin.

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